Reducing Real Estate Risk in Your Corporate Relocation Program

Tuesday, March 4, 2008 by SIRVA University

David Barlow, SCRP, GMS
Senior Vice President, Client Support Services
SIRVA Relocation

Hank Roth
Senior Counsel
SIRVA Relocation

This morning’s attendees found David Barlow and Hank Roth’s presentation, “Reducing Real Estate Risk in Your Corporate Relocation Program,” extremely relevant to the current real estate environment.  David and Hank presented the discouraging statistics that illustrate the poor condition of the housing market.  For example, at the end of January, housing inventory rose 5.5%, and existing home sales fell 23.4% from January 2007.  Additionally, January’s 233,001 foreclosures were an increase of 57% from the year prior.  January was also the month with the second-highest number of foreclosures on record behind August 2007.  Since June 2006, home prices have declined in all but three of the top 20 U.S. real estate markets, Seattle, Portland, OR, and Charlotte, NC.  Clearly, the “good times” of the housing market are over.

After the housing prices dramatically increased from January 2000 to June 2006, the unfavorable state of the current real estate market leaves the question of what caused the real estate markets to fall.  David and Hank discussed in-depth the reasons for the real estate market landing in its poor position today.  Various factors contributed to the downturn of the real estate market: speculators created artificial demand only to leave the marketplace entirely;  the Federal Reserve tightened credit by raising borrowing rates from 1.25% (June 2004) to 5.25% (June 2006);  owning a home became less affordable as the gap between home prices and income widened; manufacturing jobs in the Midwest took a huge blow; and homeowners were sold loan products that only met short-term wants and needs, which left them unable to sell or refinance due to lack of home appreciation.  Furthermore, investors pulled out of sub-prime mortgage markets after experiencing large losses, which eliminated 20% of the market in a single week during August 2007 due to the product, qualifying and liquidity changes this move caused.

The poor housinge market and the resulting real estate risks present a genuine problem today for companies with relocation policies as they face difficulties in selling the homes of their relocating employees.  In order to minimize this risk, David and Hank presented attendees with the “SIRVA Dozen” consisting of 12 real estate risk controls for companies to implement:

1. Use qualified real estate agents at both departure and destination
2. Require two broker market opinions (BMAs)
3. Delay appraisals to provide opportunity to market home before incurred costs
4. Support a mandatory marketing period (at least 60 days)
5. Establish list-price caps; 105% or less
6. Modify a BVO/BVX to an AVO/AVX
7. Tie benefits to desired behavior
8. Require full property disclosure and educate transferees on ineligible properties
9. Require active transferee marketing participation
10. Evaluate ALL offers
11. Require mandatory home finding assistance
12. Develop home sale programs that fit your company’s risk profile

Which of the SIRVA Dozen has been the most helpful for reducing real estate risk in your company?

Comments for Reducing Real Estate Risk in Your Corporate Relocation Program

Thursday, June 26, 2008 by Laura Field:
When we are involved with Corporate Relocation we try to offer as much support to the employee as possible. However, one thing we've learned from prior experience is related to one of the SIRVA Dozen - using a qualified real estate agent at both locations. This helps make the transition much smoother and helps make sure that our employee is getting guidance at every step along the way. We have seen this create a much happier employee!

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